China has reported an unexpected contraction in manufacturing activity as major cities continue to be impacted by Covid restrictions.
This morning’s PMI reading of 49.2 compares with the previous month’s 50.1 and with expectations for 50, which is the threshold for growth and contraction.
The final trading session of October sees the Dow Jones Industrial Average on course for its best month since 1976 after rising 14.4% on the back of resilient earnings and hopes for a slowing in the pace of US interest rate rises.
Banking stocks rally but FTSE 100 flat, easyJet up 4%
08:39 , Graeme Evans
A flat performance by the FTSE 100 index today masked some big moves in the energy and banking sectors as windfall tax speculation continues to swirl.
NatWest put back some of Friday’s post-results losses by rising 7.8p to 232.7p and Lloyds Banking Group lifted 0.9p to 42.1p on reports that the government is not planning to target the sector for extra taxes.
However, North Sea explorer Harbour Energy fell 5.7p to 368.3p on fears that a levy on energy profits could be extended to 2028. China’s latest disappointing economic figures added to pressure as Shell lost 44p to 2374.5p and BP dropped 2.95p to 470p ahead of its third quarter results tomorrow.
Electricity generators are also thought to be in the government’s windfall tax sights, but a “buy” recommendation from US bank Jefferies meant shares in British Gas owner Centrica still lifted 3.5p to 76.7p.
The FTSE 100 index slipped 5.20 points to 7042.47 and the FTSE 250 index edged up 19.50 points to 17,936.17, with easyJet and Wizz Air up 4% on speculation that IAG could lead consolidation of the European airline industry.
Blockchain firm Valereum buys Gibraltar Stock Exchange
08:06 , Simon Hunt
Blockchain firm Valereum has acquired the Gibraltar Stock Exchange for an undisclosed fee in a bid to turn the exchange into a hub to finance smaller businesses in Africa and the Middle East.
In August the business said it was selling off parts of its bitcoin mining business to cover the costs of acquisition. It also has plans to link securities with NFTs.
Valereum said in a statement: “The future focus of the GSX will be to expand the access to European capital for early stage and small-cap companies in the Middle East, India and Africa where there is a huge opportunity to empower entrepreneurs across the region.”
UK interest rates set for 33-year high
08:03 , Graeme Evans
Interest rates are set to hit a 33-year high this week, with the Bank of England seen hiking its base rate on Thursday by 0.75% to 3% in the ongoing battle to control inflation.
Financial markets expect that interest rates will reach around 5% next year before falling back due to factors such as the impact of the recession, lower commodity prices and the easing of supply chain pressures.
Hargreaves Lansdown analyst Susannah Streeter said: “The Bank wants to wave red flags now to throw cold water on expectations that there will be hotter prices to come and drown out demands for higher wages, which could lead to a more embedded price spiral.
“Dampening down demand now by raising rates and making borrowing more expensive is set to cause further financial pain for companies and consumers, but central banks clearly think it is the price to pay to reduce the risk of a prolonged period of stagflation.’’
China’s Covid impact shown in manufacturing downturn
07:54 , Graeme Evans
China’s economy has reported a further loss of momentum after the country’s manufacturing PMI reading fell to a weaker-than-expected 49.2 from the previous month’s 50.1. A figure above 50 represents growth.
The index for the services sector fell from 48.9 to 47, reflecting the impact of ongoing Covid restrictions on in-person activity.
Capital Economics thinks China’s economy will continue to struggle heading into 2023.
The consultancy said: “We don’t expect the zero-Covid policy to be abandoned until 2024, which means virus disruptions will keep in-person services activity subdued.
“In addition, the deepening global downturn will continue to weigh on exporters. And officials are still struggling to put a floor underneath the property market.”
Rates hopes lift Dow Jones, FTSE 100 seen higher
07:27 , Graeme Evans
A fourth successive 0.75% interest rate rise by the US Federal Reserve is seen as a near certainty on Wednesday, with clues on the subsequent path of hikes the key focus.
Deutsche Bank’s economists believe that 0.75% is also likely in December, but note that two payroll reports and two sets of inflation figures are due before the meeting.
They believe January could mark the start of a downshift, whilst still seeing upside risks to their terminal rate expectation of 5% given the recent inflation data.
Hopes of a slowing in the pace of rises have helped to lift Wall Street markets, with the Dow Jones Industrial Average the biggest beneficiary.
It has risen 14.4% so far during its best monthly performance since 1976, aided by the resilience of earnings updates outside the technology sector. The S&P 500 is up 9% and the Nasdaq Composite ahead by 5%.
The FTSE 100 index has experienced a mixed month but is expected to open eight points higher at 7055, according to CMC Markets.